Is the Impact of Managed Care on Hospital Prices Decreasing?

Abstract

Prior studies find that the growth of managed care through the early 1990s introduced a strong positive relationship between price and concentration in hospital markets. We hypothesize that the relaxation of constraints on consumer choice in response to a"managed care backlash" has diminished the price sensitivity of demand facing hospitals, reducing or possibly reversing the price concentration relationship. We test this hypothesis by studying the price/concentration relationship for hospitals in California and Florida for selected years between 1990 and 2003, while addressing the potential endogeneity of concentration. We find an increasingly positive price/concentration in the 1990s with a peak occurring by 2001. Between 2001 and 2003, the growth in this relationship halts and possibly reverses.

Keywords: Hospitals, Managed Care, Pricing

JEL Classification: I11